Listen to our latest Investing Matters Podcast episode 'Uncovering opportunities with investment trusts' with The AIC's Richard Stone here.
To seek capital growth over the long-term through a focused, global portfolio consisting of the equities, or related instruments, of natural resources companies by investing in unlisted and listed companies.
Find out MoreLondon South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
A quick look at the 1-year chart shows significant destruction of shareholder value. Yes, the bounce over the last month is nice, but I hope the BoD get roasted at the AGM.
Well, the fruits of patience are coming rapidly to ripeness.
1/ Bilboes - sold to Caledonia - 1% NSR, Listed Caledonia Holding (10-25% TP upside Liberum/WH Ireland), 3.2% Div.
2/ Futura - 26% stake in 2 Metalurgical Mines now permitted, Wilton and Fairhill, moving to FID $25m, also 1.5% NSR
3/ Tungsten West - bombed out in 2022 but 25% IRR and Tungsten in demand following Ukraine conflict.
4/ Kanga - highly attractive economics fertiliser - IPO in 2023 or 2024
5/ Nussir - Copper DFS done - FID next step or IPO in 2023 or 2024
6/ Cemos - 2nd production line completed late 2022.
7/ Prognoz - tied to POLY - opens 2023 and NSR worth $1.5m a year. Possible issues extricating the money until war ends. (But POLY is going great guns as a business, and its share price has doubled in the past few months following growing optimism.
8/ First Tin - listed and bombed out in 2022; now recovering; tin is back to $30k; DFS being worked on.
There's so much good news filtering through and the discount has narrowed from 45% to 36% but the long term discount to NAV is on average 20% and each commodity area (gold, tin, fertiliser, coal, silver) are either at elevated levels or are heading higher. There's lots to like and compared to other royalty plays this one is inordinately cheap! Its market cap is £55m and holds assets worth (today) £88m.... but "worth £88m" is based on a locked-in value which unlocks this year or on a purchase price and not a fair value. So if we took this to be conservatively 25% then this is actually still on a 50% discount to NAV. Reversion to 20% suggests a 60% upside from here. (to about £0.85/share). If it reverts to par (as it did in June 2021 during a period of excitement around commmodities) then a target price of £1.10 is realistic.
It's difficult to see any downside here at its current 52p. Even if we do see severe recession later in 2023 (we aren't even close to that as I write) the breadth of geographies and commodities insulates the buyer.
Certainly, credit to its management who are rather (too) quietly plugging away on the deal flow and shepherding this array of commodity plays. This one dropped in 2022 along with its holdings and the uncertainty of finding a hobbit-sized home for Bilboes, and the news of stranded Russian assets, uncertainty of coal investment in Australia all seemed risky. But in 2023 much of that uncertainty is now looking much more positive and a path ahead to prosperity now is clearer.
GLA
I've been trying to dig into the assets here to understand them better. I've covered Bilboes previously so why not look at what is now the largest?
Futura is at FID (Final Investment Decision) stage. There should be a decision in late 2022.
See: https://cqtoday.com.au/news/2022/10/17/coal-regions-billion-dollar-baby/
See: http://bakersteelresourcestrust.com/wp-content/uploads/2022/09/Baker-Steel-Resources-Trust_30.06.2022.pdf
It has a large resource including a good proportion at sub 100m depth.
See: https://www.futuraresources.com.au/operations
Total 2.6bt metallurgical coal and 739mt at sub 100m
AISC per tonne of coal for Queensland Australia = £80/tonne
See: https://miningdataonline.com/property/list.aspx?cat=0&cmids=25&tids=1,4&ssids=1,3,2&fm=0&yr=21&rb=on&vw=11
Current Market price for coal is US$385/tonne ~ £350/tonne.
See: https://tradingeconomics.com/commodity/coal
Futura's mine are right next to transport links and other mines. This neighbouring mine was bought for AD$100m with a 60MT+ resource and will yield 3MT/year for 20 years.
https://www.sojitzblue.com.au/gregory-mine
So 1/10 of the size of Futura's resource at sub 100m (let alone the other 1.9bt deeper down).
A planned 2.3MT/year would bring annual revenue of £350x2.3m = £805m and EBITDA of £621m
Minus out the Queensland tax 15% and 40% above A$300 equates to about £100/tonne tax so EBIDA would drop to £390m.
BSRT is on a 40% discount to NAV. Futura NAV's book value is 27.7% of 80.4p/share so 22.27p/share or £24.1m (based on NAV). So the question is even if my numbers are out by a factor of 10 the value here is insane. Assuming the FID gets funding and in June they said "in the next couple of months", then something that generates significant profits of Price Earnings less than 1, but is valued at £24.1m and you can buy at a 40% discount...... (the equivalent of 13.4p/share)
So 51p to buy BSRT where Futura alone seems to be potentially worth at least that based on the nearby mine value and based on comparative Australian mine profitability.
The stranded asset challenge is another factor here but remember this is metallurgical coal not thermal. Hydrogen powered steel making is not happening any time soon so there's a 20-25 year life to this asset.
GLA
CMCL is currently at £8.90/share but Cenkos forecast it at £15.25 while Liberum see a £14.21 value.
So 800,000 shares if it reached £15.25 would equate to £12.2m while the NSR gross value based on the probable and proven 1,964koz and at $1,900 gold price would equate to $37.5m gross. Out of interest the NSR is capped at $75m which either would be reached if discoveries doubled - or the price of gold doubled or a bit of both.
If dividends from CMCL only remain static at 56c (46.6p) for the next 9 years then those equate to a further £373k per annum which over 9 years is a further £3.35m.
So BSRT's market cap is £68m and the Bilboes deal could generate £12.2m (shareS)+£31.25m (NSR)+£3.35m (divis) = £46.8m
Bilboes represents 13.6% of BSRT's NAV so using the market cap that "valued" by the market at just £9.1m. So I've concluded that there's a £37.7m disparity in valuation.... or 56% uplift of the current market cap.
Meanwhile Future (coal) and Cemos (cement) are both doing (very) well. Tungsten West doing better. And these are the top 3 holdings (Bilboes is 4th largest). Also Kanga (Potash) looks exciting too (albeit it's just 4.4% of NAV)
https://www.edisongroup.com/publication/nav-broadly-flat-in-fy21-after-strong-fy20/30462/
I tried to top up today but couldn't buy BSRT on the mobile (a missing disclosure document?) but on the desktop this evening it's allowed me to place a limit order so hopefully I double my stake first thing tomorrow. Cannot believe that it only went up by 0.8% on today's news. Totally overlooked.
GLA
My soliloquy continues: today’s news confirms my feeling that Bilboes baggins held upward value. The 800,000 shares in Caledonia realises the “book value” (assuming CLDN doesn’t drop in the following 6 months) however the NSR is worth a further $2.6m a year over 20 years so a NPV of £25m (assuming a gold price of just $1650) or a 40%uplift in NAV to a 60% discount to market value. This is completely overlooked by the market today (less than 1% move in price) so a screaming bargain in my opinion.
More so if you believe gold will exceed $1650 an ounce in the future or you consider Caledonia shares will increase in the future…..
2022 First Half Thoughts:
BSRT now contains a mix of "private equity" access to funded juniors and listed holdings who are for the most part in the process of starting production. Expecting a continued price rise across many commodities should continue into 2022 let’s see where we are:
Gold YTD down -1% $1810/oz
Coking Coal up 147% $388/tonne
Tungsten up 14% $362/tonne
Silver down 4% $20/oz
Copper down 18% $7,980/tonne
Tin down 30% $26000/tonne
Zinc down 17% $3,029/tonne
Potash up 154% $341/tonne
Other 4%
NAV dropped 98.4p to 87p (31/5/22) largely due to Tungsten West Plc and First Tin Plc
We were due to see “a strong backdrop” and “a number of IPOs” to crystallise value. So what happened?
Negatives 2022 H1
? Commodity price falls – I don’t think anyone foresaw that copper, tin and zinc would be between 17-30% cheaper than 6 months ago. These are “energy transition metals” (zinc not so much) yet these are sensitive to economic growth/contraction. Judging by the extent of the falls quite a nasty contraction is coming.
? No “NAV trigger” events yet in 2022; IPO market conditions are generally poor
? The Prognoz silver mine royalties (with Polymetal Plc) held through Polar Acquisition (PAL) has been written off
Positives 2022 H1
? Ukraine Invasion – a positive for BSRT's portfolio has been the price of potash, tungsten and coal.
? Longer term energy transition fundamentals have not changed
? Silver X – a JORC 14.9MT at 162.65 g/t, 2.54% Pb and 2.5% Zn was a 104% uplift
? No comms beyond a brief monthly NAV report and the 2021 annual report
Conclusion: The discount to NAV dipped to 32% in June and has since rebounded to 25%. This is still above normal and BSRT’s convertibles give an upside/downside approach i.e. they hold debt but can convert the debt to equity if it suits them. There’s a chunky discount in some highly prized commodities which is anomalous and the price drops in copper, silver and tin cannot be sustained by producers who are close to or below their cost of production – suggesting a rebound will come. Some positions including Kanga, Cemos, PAL and Bilboes have book values potentially far below their realisable value so quite a few areas of uplifts. Has 2022 gone to plan for BSRT? Not really. But don’t write off BSRT just yet – there’s gold in them there hills!
GLA
Replying to your own post is bad etiquette, I know, but this trust is a complete pig.
We're flat-to-down whilst other resource trusts are screaming higher. What's going on? Did our fund manager back a load of lemons???
Fingers crossed.
As a share of investments this is a way to gain "private equity" access to funded juniors who are for the most part in the process of starting production. One exciting aspect is the fact that miners are leveraged plays. There are a number of reasons why there are price rises across many commodities should continue into 2022 and beyond. Even those which haven't done well (Silver and Gold) should see a better year in 2022, and certainly have a strong floor/resistance above $1750 where Indians and Chinese particularly will buy physical gold on any dips. Jewellery demand is strong. Moreover the fact the market doesn't appreciate is that gold and silver miners are very profitable at current prices.
Here are the final commodity prices for 2021
Gold 21% (2021 YOY fall 5%)
Coking Coal 16% (YOY rise 110%)
Tungsten 16% (YOY rise 250%
Silver 11% (YOY fall 11%)
Copper 7% (YOY rise 27%)
Tin 5% (YOY rise 93%)
Zinc 4% (YOY rise 29%)
Potash 3% (YOY rise 71%)
Other 4%
So there's a strong backdrop and a number of IPOs of Baker's portfolio which should help crystallise value. The other attraction? Current NAV is 97p and you can buy that at a 23% discount at current prices (75p). Discount has been 0% recently, especially when a periodic review is due.... And NAV has roughly doubled over the past 3 years and 141% TR over 5 years of mainly via IPOs crystallising that value suggesting there's further hidden value to be found here and 9 companies in its Portfolio have events during 2022 that are NAV triggers (Bilboes, Mines and Metals, Cemos, Tungsten West, Futura, Nussir, Kanga, Azarga, First Tin, ) so 97p may be (well) below its true NAV and therefore further value and insulation. While the portfolio is relatively small and concentrated it is geographically diverse as well as commodity diverse too.
Good luck fellow Bakers for 2022!
Have stuck a toe in, this despite concerns about Russia and most particularly Zimbabwe.
Hope to add as and when possible.
At the market price instead of issue fee shares to themselves.
Very interesting share with a good record, the assets are Bilboes gold that they are in the process of selling for four time the purchase price (£20 Million), Polar Advisory hold 2 percent silver royalty interest in a Poly metal silver mine first production 2024, Tungsten West old Wolf mining assets, spent 200 million before going bankrupt, feasibility study done on reopening the mine looking for backing to the tune of 30 to 40 million (Worth reading the Baker steel study on this mine), Cemos a cement company Morocco in production but doubling next year before BSRT will then look to sell.
If you are interested do your own research, the above is from memory and might not be 100 percent accurate, but it gives you some idea in the type of management you are buying into.
jhaylock
Is still bullish, but since my last comment in October, the moving averages are all in line and the 200 EMA is sloping upwards. A great sign. https://uk.tradingview.com/i/7FBUeBIO/
Small and steady breakout for BSRT. For me the next target is 55-59p. DYOR
BSRT is finishing off a 3 year cup and handle formation and could be about to break out. Nothing guaranteed though.
Does anyone have an opinion on this trust? Technically and fundamentally it looks good to me.
some rather large transactions swooshing through atm.